– Remarks by IMF Managing Director Kristalina Georgieva at the EU-AU Summit Roundtable on Financing for Sustainable and Inclusive Growth in Africa. [February 18, 2022.]
As the world emerges from an unprecedented crisis, all countries are struggling with challenges, but it is particularly true for Africa. Africa experienced a painful contraction in 2020. Since then, it has started growing again, but for many countries growth falls short of what is needed.
In both 2021 and 2022, Africa’s projected growth trailed the global average. And it ought to be the other way around. Africa should outperform the rest of the world, so countries can create jobs and lift [up] living standards.
IMF actions to support Africa
It is in this context that we at the IMF have taken unprecedented action to support our member countries, especially on the African continent. I like to say: we are stepping up with and for Africa.
We have reformed our concessional lending framework. And here I want to recognize prime minister Magdalena Andersson of Sweden. Her leadership as chair of the International Monetary and Finance Committee (IMFC) helped us to increase access to IMF financing for African economies. And, as a result, last year we provided lending that was 13 times higher than the annual average of the previous decade.
We also moved quickly for a Special Drawing Rights (SDR) allocation. As has been acknowledged, it has helped Africa, but it has not helped enough. In some countries, it amounted to as much as 6 percent of their GDP which is not at all trivial. But that said, US$33 billion for African countries out of a US$650 billion global allocation is clearly not where we want to be.
So, we are moving to the next frontier which is large scale on-lending of SDRs, from countries that got them but don’t need them as much, to countries that need them most. This is the context for where we are headed.
The road ahead
We are headed towards a global target for reallocation to vulnerable countries of US$100 billion, a target set by leaders last year. At that time, for many it sounded quite unachievable. But today, we are more than halfway towards reaching this target.
We have about US$60 billion in pledges from G20 members and, of course, we are calling for more.
There are two avenues to deploy this on-lending of SDRs:
First, the tried and tested Poverty Reduction and Growth Trust. I can proudly say that the IMF is in the position to lend to countries in proportion to the quality of their reform programs. We will not ration support for African members.
But that is still not enough because we recognize that Africa, like the rest of the world, faces a complicated transition toward a low-carbon, climate-resilient economy. And Africa needs to build resilience to disasters and shocks.
So, my second “avenue,” with the support of our members, we are now creating the groundbreaking Resilience and Sustainability Trust (RST).
The RST and SDR Channeling
For the first time in our history, the IMF will offer longer-term maturities and longer-term grace periods to support the structural transformation efforts of emerging market and developing economies.
Our objective is to have the RST design approved at our Spring Meetings in April. I ask all member countries to help us meet this deadline and thus to be in the implementation phase by the Fall.
What are the features of this new Trust?
First, we will strive to keep interest rates very low, close to the interest rates for SDRs which today are still 0.05 percent (5 basis points).
Second, we will offer policy support for longer-term structural transformation programs, with 10-year grace and 20-year repayment periods.
Third, and this is our main objective, we aim to catalyze private sector investment in emerging market and developing economies. In other words, remove barriers to private sector participation and allow the scale of financing that Africa needs.
Last May, we assessed the needs of the African continent up until 2024: just to overcome the impact of COVID-19 is US$285 billion, and twice as much again to return Africa to a growth path where it can catch up or converge with the more advanced economies.
That amount of money would, of course, also require reforms in countries, which we will be supporting, for domestic resource mobilization, quality of spending (especially investments in human capital), and also to increase private sector participation.
Indeed, we are discussing with the private sector community how best this can be done. The overarching idea is that there could be a contribution to reduce the risk for private investment by borrowing from the RST. Strengthening the policy environment then allows investments to flow and that allows for the coordinated participation of development banks as well.
So, my main message today is that we are on the right track to make a major contribution to financing in developing countries and, in particular, in Africa. And we intend to do that in collaboration with others. Today we also heard from president von der Leyen on the Global Gateways Initiative that has the same objectives to bring in private sector financing at a large scale.
There has been a lot of interest in whether we can channel SDRs through regional development banks. And the answer to this is, unfortunately, that we cannot.
Let me explain why…
We very much want to partner closely with the regional development banks. But the reason our members cannot channel SDRs directly to the regional development banks is because we have to protect the reserve quality of this asset called “Special Drawing Rights.”
And clearly, the responsibility to guarantee this reserve asset quality rests on the shoulders of the IMF. It is vitally important for our members who are willing to provide the SDRs that we do this in legal compliance with the Fund’s regulations.
In this context, however, we are advocating for even greater collaboration to work in partnership, to draw on expertise from regional development banks, and to seek ways in which we can leverage more resources together.
I want to thank president Sall and president Macron – who were the originators of this thinking in November 2020. And now, with the support of so many others, we have gone a significant way toward this goal.
“It is impossible until it is done”, to quote a leader of Africa that we all admire.